Q1 2022 Crossamerica Partners LP Earnings Call

You've been muted morning, two under your journals print North America for our first quarter 2022 earnings call.

With me today is Charles Mysore CEO and President.

Charles will provide some opening comments and a brief overview of cross Americas operational performance and highlights from the quarter and then I will discuss the financial results.

At the end, we will open up the call to questions.

I'd point out that today's call will follow some presentation slides that we will utilize during this morning's event.

These slides are available as part of the webcast and are posted on the Cross America website.

Before we begin I would like to remind everyone that todays call, including the question and answer session.

Forward looking statements regarding expected revenue future plans future operational metrics and opportunities and expectations of the organization.

There can be no assurance that management's expectations beliefs and projections will be achieved.

Or that actual results will not differ from expectations.

Please see cross America's filings with the Securities and Exchange Commission.

Including annual report on Form 10-K quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results.

Forward looking statements represent the judgment of cross American management as of today's date and the.

The organization disclaims any intent or obligation to update any forward looking statements.

During today's call. We may also provide certain performance measures that do not conform to U S generally accepted accounting principles or GAAP.

We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release.

Today's call is being webcast and a recording of this conference call will be available on the Cross America website for a period of 60 days.

With that I will now turn the call over to Charles.

Thank you Mara more and I appreciate everyone. Joining us this morning as always we thank you for your interest in the partnership.

During today's call I will briefly go through some of the operating highlights for the first quarter.

I will also provide an update on certain trends in the market and review some additional information similar to what I provided on previous calls.

Mark will then review in more detail the financial results.

Now if you turn to slide four I will briefly review some of our operating results.

For the first quarter of 2022, our wholesale fuel gross profit was $32 8 million, a 54% increase when compared to the first quarter of 2021.

Driven by increases in both volume and fuel margin.

Wholesale segment gross profit was $46 9 million, an increase of 35% or $12 $1 million when compared to the first quarter of 2021.

Our wholesale fuel volume was $320 2 million gallons for the first quarter of 2022.

An increase of 10% when compared to the same period of 2021.

Largely due to the acquisition of assets from 711.

In terms of same store volume performance in wholesale for the quarter, we were down approximately half a percent year over year.

We were close to flat on same site volume performance overall for any given week in the quarter. There was a material variability away from that overall number.

In January same site volume was down in the low double digits year over year, that's a country dealt with autocross Serge.

February volumes were up in the mid single digits year over year as activity picked up apartment crowd receded.

Finally in March volumes were negatively impacted by the surge in fuel pricing due to the Ukraine conflict and other factors.

The surge in fuel prices continued to adversely impact same site volumes into April although in recent weeks, we have seen improving volume performance.

We also saw an increase in our wholesale fuel margin per gallon for the quarter.

Reporting $10.02 per gallon compared to seven three per gallon for the first quarter of 2021.

An increase of 40%.

The year over year increase was primarily driven by the following factors.

First we benefited from increased volume across Americas company operated retail sites, which we supply at a variable margin basis.

Second we continued to benefit from better sourcing costs due to execution of certain strategic initiatives such as our branch consolidation.

Finally, our wholesale fuel margin per gallon also benefited from higher variable fuel margins due to market conditions.

On our wholesale right our base rent for the quarter was $13 $3 million compared to the prior year of $13 million, a slight increase due to the reopening of certain previously closed sites.

Our retail segment also performed well during the quarter as gross profit rose $13 million or 66% compared to the first quarter of 2021.

Our motor fuel gross profit decreased 93% and our.

Merchandise gross profit rose, 61% when compared to the same period in 2021.

For volume on a same site basis, our retail volume was up 4% for the quarter year over year.

Our ability to grow retail same site fuel volume and still maintain strong margin performance indicates the continued success of our retail strategic and operating initiatives and our ability to deliver overall value to the consumer.

For inside sales on a same site basis, our inside sales were down 3% relative to last year.

However, inside sales, excluding cigarettes were up 1% year over year on a same site basis.

As a reminder, can reviewing our retail segment financial performance. It is important to remember the wholesale segment supplies, our retail segment on a variable margin basis. So the overall fuel profitability at these sites is split between our wholesale and retail segments.

The fuel margin to our retail sites recorded in the wholesale segment.

Say meaningful contribution to our wholesale segment and to our overall profitability that is not apparent looking at the retail segment's financial results in isolation.

As we review our expenses for the quarter, we saw an increase in our operating expenses compared to the prior year.

The increase in operating expenses was primarily driven by the addition of a 711 sites.

Which increased our average company operated site count from 151 to 254, a 68% increase in site count year over year.

Well I will also provide some additional commentary on expenses and inflation in her comments.

Our G&A expense declined $1 $2 million or 15% for the quarter year over year, primarily due to a decrease in acquisition related costs associated with the 711 sites that we acquired.

We finished the acquisition of the last few remaining sites the 711 portfolio during the quarter in February .

Our strong results for the quarter are due in part to the solid contribution of the 711 portfolio assets.

We continue to work on maximizing the results of these assets as well as the results of our entire retail portfolio.

As part of our ongoing initiatives, we continue to evaluate our portfolio look for opportunities to divest noncore properties.

For the first quarter, we had four property sales for $1 $5 million in proceeds.

We have a strong pipeline of identified opportunities within our portfolio to execute on in 2022 as we continue the process of recycling capital to invest in growth opportunities within our portfolio.

On the capital raising front, we issued $25 million in preferred securities at the end of the quarter our COO.

Capital raise was part of our financing plan for the recently completed acquisition of assets from 711 and reduce the outstanding borrowings that were initially used to fund the transaction acquisition.

The preferred securities were issued to entities controlled by our chairman, Joe Topper, and Vice Chairman J B Riley.

Let the strong and ongoing commitment of these individuals to the partnership.

Laura will provide more details on our capital raise in her comments.

For the period since the quarter end as I touched on in some of my earlier comments.

We continue to see some weakness in fuel gallons, both wholesale and retail in April as the impact of higher fuel prices weighed on the consumer.

The last few weeks, we have seen the impact moderate with improving gallons and inside store sales. We are optimistic about a strong summer driving season in comparison to recent years.

Finally, a word of thanks to all the employees across America throughout the Covid period, they have been either out in the field serving customers both retail and wholesale.

We're working in the office to support our operations.

It is easy to take that feat for granted but as you look at there's still a large number of firms and employees not back to working on site yet <unk>.

Unrealized is how unique we have been during the Covid period to have all of our employees beyond location essentially the entire time.

To all of our employees listening today. Thank you for your dedication to the partnership and for your contributions and delivering a solid first quarter results.

In conclusion, the first quarter was a strong period for us despite a challenging operational environment driven by concerns about common chronic January .

And later in the quarter, the extreme all market pricing volatility pressures in March.

Our results this quarter illustrates the underlying strength of our asset portfolio.

And provide evidence of the impact our strategic initiatives have had on improving our operational performance.

With that I will turn it over tomorrow for a more detailed financial review.

Thank you Charles.

Please turn to slide six I would like to review our first quarter results for the partnership.

We reported net income of $5 million for the first quarter of 2022.

Baird to a net loss of $4 million in the first quarter of 2021.

The increase in net income was primarily driven by the year over year increases in operating income in both the wholesale and retail segments with each segment benefiting from the acquisition of assets from 711, along with a favorable fuel margin environment.

Adjusted EBITDA was $32 million for the first quarter of 2022, which was an increase of 55% when compared to the first quarter of 2020 one.

Our distributable cash flow for the first quarter of 2022, it was $24 $2 million.

$15 $8 million.

The first quarter of 2021, which was an increase of 54%.

The increase in distributable cash flow was primarily due to the increase in operating income in both the wholesale and retail segments.

It really upset by an increase in cash interest expense.

So it's the first quarter 2022, adjusted EBITDA and distributable cash flow numbers were record highs for the first quarter, we had a partnership.

Our distribution coverage for the current quarter was one to two times compared to 0.79 times for the firm.

First quarter of 2021.

Our distribution coverage on a paid basis for the trailing 12 months was $1 three nine times.

At 1.2 or three times for the 12.

<unk> months ended March 31st 2021.

I'll take a moment here to comment on a topic that is top of mind for many of us at this moment inflation.

Throughout this first quarter and past several quarters, we have been closely monitoring the impact of inflation on our various costs.

The price of fuel the price of merchandise as well as labor and other operating expenses.

To date, we have generally been able to identify and pass through these costs.

Customers.

With some impact of volume during the last portion of the quarter at higher fuel prices.

As Charles noted earlier.

We are mindful of the impact of inflationary pressures across the economy on consumers.

Our team is adapting strategies to maintain our fuel merchandise and overall margin profile.

Focused on ensuring that we are competitively priced and our markets.

Her name is a destination of choice for our customers.

If you'll please turn to the next slide.

The partnership paid distributions of 52, and a half cent per unit during the first quarter of 2022.

Attributable to the fourth quarter of 2021.

Total of almost $20 million.

And as I noted on the previous slide this resulted in a coverage ratio of 139 times on a paid basis for the 12 months.

In regards to our capital expenditures during the fourth quarter, we spent a total of $8 $9 million.

It was $7 $4 million that total being growth related capital expenditures.

This represented a year over year decline of approximately $1 $7 million.

Growth related capital spending during the quarter was primarily related to the continued integration of the sites acquired from 711 and.

As well as remodeling a site in our existing portfolio.

The upgrades and safe rebranding.

As Charles noted earlier in the first quarter. We also completed the issuance of the $25 million preferred equity security by our wholly owned subsidiary capital J Camp Holdings LLC.

The security provides for a 9% cumulative preferred return to the holders.

The preferred membership interest in capital Jay can holding will be exchangeable in the future.

Subject to certain terms and conditions.

The common units of Cross American partners.

At an exchange price of $23 74 or into cash at the hold or sell will act.

The net proceeds with the security issue in Britain.

Used to prepay a portion of the term loan component of the JK and credit facility.

The issuance of the preferred equity security was approved by the conflicts committee at the board of our general partner as well as our full board.

During the first quarter of 2022.

Did see an increase in the value of our inventory driven by the increased price of motor fuels over the course of the quarter.

We saw a related increase in our accounts payable balance over the course of the quarter as well.

As is typical in our industry.

Current liabilities are greater than our current assets.

Due to the longer settlement Timeframes for real estate and motor fuels taxes as COO.

Compared to the shorter settlement of receivables and inventory turnover.

In spite of the significant increase in the price of motor fuel over the course of the quarter.

We were able to improve our net working capital position over the course of the quarter due to our deleveraging activities.

And cash generation from operations.

In regards to our two credit facilities and leverage.

As of March 31, 2022.

If we were to calculate our leverage ratio for the organization overall as defined in our credit agreement.

Taking into account, our total debt levels and the benefit that the pro forma impact of our newly acquired assets.

Our blended aggregate leverage ratio would be around four nine times.

Impaired to approximately five one times at the end of the fourth quarter of 2021.

We will continue to move toward our target leverage ratio level four to four and a quarter times.

Both the credit facility defined and blended aggregate basis over the next 18 to 24 months.

In conclusion as Charles noted earlier, we had a solid first quarter, despite the challenging operational environment.

As we move further into 2022.

We will continue to focus on our operations and manage our balance sheet, including our leverage and distribution ratios.

We're in a good financial position entering the summer driving season.

With that we will open it up for questions.

Thank you and we will now begin the question and answer session for any questions. You can press zero then one on your phone.

Listening opening your computer as well as on your fourth please be sure to mute your computer speakers before asking your question.

Once again, if you ask a question at this time, please delta zero one on your Touchtone phone.

We're standing by for questions.

Yeah.

Okay.

So far we have no questions, we'll just give it a moment here just in case.

Hum.

Okay, well it doesn't seem like we have any day.

No questions.

So again, thank you to everyone for joining us on the call as an additional note more and I will be attending the EIC investors Conference next week, we will also be hosting a webcast of our presentation on Monday, we'll be providing additional details on the webcast on our website. Later this week. So we hope that you'll be able to join us on the webcast.

Thanks for your interest in the partnership.

Good day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining.

May now disconnect.

Okay.

Okay.

[music].

Okay.

Yes.

Yes.

[music].

Yes.

Okay.

[music].

Okay.

Okay.

[music].